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Kim reports, “During the opening statements, however, Peter Oppenheimer revealed that the agreements began in the September and December quarters: ‘During the September and December quarters, we executed long-term supply agreements with three vendors through which we expect to spend a total of approximately $3.9 billion in inventory component prepayment and capital expenditures over a two-year period. We made approximately $650 million in payments under these agreements in the December quarter, and anticipate making $1.05 billion in payments in the March quarter.'”
Kim reports, “Looking back at the previous quarters, it seems to us that Apple is likely securing LCD supplies from various vendors for the years to come.”
Much more in the full article here.
[Thanks to MacDailyNews Reader “Jax44” for the heads up.]
MacDailyNews Take: Whatever Apple is doing, expect it to be about creating/securing something that competitors will not be able to match.
LCD’s, memory, and perhaps processors as well
Liquid Crystal Display displays?
A real Apple TV??
Years to come?? Prob more like months…..
A rumor is a story that purportedly true, but cannot be substantiated. This is simply speculation; someone’s guess at what Apple is doing. Call it what it is.
. . . Competitive Advantage
Damn these guys are smart.
@Spark,
The story is mainly factual and obvious analysis, with only a modest amount of speculation.
Is there potential for anti-trust here? I realize Apple is not abusing power, they’re just spending their hard-earned, miserly saved cash, but with the current administration (not to get political, it’s just a fact that Democrats are more likely to pursue anti-trust), is it possible an argument could be made that Apple is taking advantage of its position?
Again, it seems like a dumb argument, given that Apple is merely spending cash they previously saved, but crazier things have happened.
@MrMcLargeHuge: Yes, please don’t get political here. It just brings out the ultra right wing conservative loonies…
@ MrMcLargeHuge
If what you are suggesting is possible, it would be a prime example of screwed up politics and politicians (ok, so 98% of them).
What you are saying is Apple could be punished for excelling, for innovating, for being conservative with their cash. Why should they be punished for that?
This would not be a negative for the consumer. This would be a negative for the competition, because the competition is miserably pathetic.
Liberal Politics tend to want to make things equal – level the playing field.
Conservative politics tend to allow the survival of the fittest – hang yourself or save yourself.
If we’re being honest and we observe examples of life:
1) there is no such thing as fair. Leveling the playing field enables poor performance.
2) the fittest almost always survive.
Let the “go-getters” go & get. Everyone else, fend for yourselves.
@Bunsen Honeydew:
1. Leveling the playing field means reducing everything to the lowest common denominators, which guarantees poor performance.
2. In the business world, “survival of the fittest” means that thieves and liars rule the roost, which is most certainly the case at the present time. Apple is a total anomaly—a company that competes on the basis of excellence alone. No wonder the rest of the industry hates Apple!
@ MrMcLargeHuge: “Is there potential for anti-trust here?”
Not at all. I would wager to guess that Apple only orders what it needs and that they don’t use coercion or threats to get the best deals. Of course the size of Apple’s orders probably will continue to push their demands ahead of others, but that’s completely up to the suppliers. Some of the manufacturer’s have started building new facilities just to keep up with Apple’s orders.
Apple may become large enough in the future to just start buying up some of these suppliers and manufacture their own components to save a few bucks. I imagine that may happen this year as they move passed the 100 million iOS device per year sales rate. (Which I believe they already hit, last quarter alone they approached 35 million; 16m iPhones, ~10m iPods, 7m iPads)
More than likely this will happen with the next, next generation Apple SoC (A6?) and then maybe move to displays in several years.
I’ll bet they blew all of that cash on booze ad hookers
In my business, I give people quantity discounts all of the time. For one, whatever I’m creating for them becomes cheaper per unit with mass production.
Secondly, anytime you can secure a large deal it provides the kind of stability you don’t pass up. It seems to me that Apple is saying to these companies, “Hey, give us this price and we’ll be gazillions of them from you.”
Since no other companies are buying the product at that volume, they should not expect to get the same price.
@Michael
I was under the impression the deals were exclusive, but it seems I may have insinuated something that does not exist. My thought was that if they are exclusive, Apple could get charged with anti-trust because no one can compete with their stockpile of cash, thus meaning Apple abused their position. Now, I realize that it was through excellence and discipline that Apple was able to save that cash, and it seems like such a dumb argument to me, but it also seems like some would say it is an abuse of power.
The reason the thought came to me was because of the memories of flash storage shortages back around 2006 when the iPod line began shifting to flash in large quantities. Apple was not affected because they had bought up all the supply, but other companies were having a difficult time securing supplies.
It could also be solid state drives. Today these are expensive because there is not enough volume. If apple can pre-order volume, they may be able to provide solid state storage at a fraction of what others can. Maybe we will see terabyte solid state drives in all mac books and maybe even iPads!
@ MrMcLargeHuge: “I was under the impression the deals were exclusive”
Not exclusive, which is the reason why Apple usually needs several vendors for parts to meet demand.
“flash storage shortages back around 2006 … Apple was not affected because they had bought up all the supply”
This is merely forecasting supply and demand and preparing yourself for it. Those are agreements made between Apple and the vendors. If the vendors make a deal with Apple, but fail to meet supply for the rest of the industry at some point in the future, how is that Apple’s fault? It sounds more like the vendors failed to forecast demand for their products. Regardless they’re still obligated to meet Apple’s demands, because Apple already paid for the components.
It was actually just a smart business move on Apple’s part.
If Apple had gone to these vendors and said if you want to build for us, you can ONLY build for us, then there would be anti-competitive issues to deal with. This is exactly what Microsoft did in the 90’s (among other anti-competitive tactics), but they told OEM’s that if they wanted to sell Windows computers, they could ONLY sell Windows computers and nothing else.
There’s nothing remotely anti-trust about Apple’s component investments. Nothing prevents IBM, HP, Microsoft, Dell or anyone else from doing likewise. They just lack the confidence in their own products – with some justification one might add.
Back around Dec 17th and 18th, a couple reports came out that Apple had invested with Toshiba and Sharp to build new $1.2B LCD plants for handheld devices. The Toshiba one was eventually denied.
$3.9B will get you close to 20 million touchscreens at $200 each or 100 million at $40 each. Scale the number and unit cost up or down as you see fit. The way that Apple mobile devices are selling, this may be just a downpayment relative to the full cost over several years of iPod touch, iPhone, and iPad sales…
This is why apple has tons of cash. They can then use it to secure component supply at the quantity and price they want. This way they guarantee they have them when they need them.
It takes time to ramp up production and the killer can be if one component is missing.
Credit tim cook for this. Apple had a lot of problems inthe past with production and now they have it right.